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18 September 1998: Add links to John Holum, Franklin Miller and William Reinsch
testimony.

China Satellite Technology Transfer: Full Committee hearing on Thursday,
September 17, at 9:30 a.m. Originally scheduled for September 2, Members
will examine the Department of Commerces involvement in the transfer
of satellite technology to China. Senator McCain will
preside. Following is the tentative witness list (not necessarily in order
of appearance):

Panel I

Honorable John Holum, Acting Under
Secretary of State for International Security Affairs, U.S. Department of
State

FULL COMMITTEE HEARING
ON THE TRANSFER OF SATELLITE TECHNOLOGY TO CHINA

September 17, 1998

I would like to thank our distinguished witnesses for appearing before the
Commerce Committee today to discuss the problems which have come to light
in the past several months related to transfers of satellite and missile
technology to China. Our first witness this morning will be the distinguished
Congressman Dave Weldon of Florida, who will focus on the United States space
infrastructure, as problems there provide incentives for satellite manufacturers
to launch abroad. Following his remarks, we will have two panels. The first
panel consists of representatives from the three federal agencies most closely
involved in these issues, the departments of State, Defense and Commerce.
The second panel includes representatives from the GAO, former Administration
and agency personnel. I thank all of them for taking time from their busy
schedules to be with us today.

It is clear that the export of satellite technology to foreign countries,
including China, requires a balancing of both national security and commercial
interests. Particularly when considering exports involving countries such
as China, which may have foreign policy interests that sometimes run counter
to our own, it is critical that safeguards are in place to assure that national
security is not sacrificed by the otherwise legitimate pursuit of trade.

I am deeply concerned that there is an appearance of impropriety in the decision
to change the jurisdiction for approval of satellite exports from the Department
of State to the Department of Commerce. It is clear that this was done to
ensure more rapid approval of exports, without the checks inherent in the
State Department's licensing process, and so that the export of satellites
would not be subject to sanctions against China. Was this decision the result
of a rational balancing between national security and free trade considerations?
Or was it a result of campaign contributions made by individuals who may
or may not be tied to the Chinese government? I am also concerned about legal,
but extremely aggressive lobbying of pertinent federal agencies by industry
for a favorable resolution of the licensing issue.

Successful balancing between free trade and national security demands the
highest level of confidence by Congress and the public in the integrity of
the decision

makers. We must have confidence that the decisions made are in the best interest
of the country. When the decision makers are cloaked in the shadows of
impropriety, we lose confidence. When I see memos such as this one (MEMO
RE WHITE HOUSE ACTIVITIES), advertising how favors such as inclusion in
Department of Commerce trade missions can be bought for a campaign contribution,
I can't help but wonder whether the same agency can be trusted to make
responsible decisions regarding national security.

Earlier this year, in January 1998, the Commerce Department moved forward
to approve an export license for Chinasat8, a commercial satellite sold to
China. This was done notwithstanding that the applicant company was, and
remains, under investigation by the Department of Justice for alleged unlicensed
and illegal exports of satellite technology to China, and notwithstanding
objections raised by the Justice Department.

The Department of Justice raised concerns that prosecution of the company
could be negatively impacted by approval of the waiver and license. If the
investigation results in criminal indictments and convictions, among other
penalties, the company would not be permitted to export for a period of time.
The license was approved prior to completion of the investigation, apparently
because the company involved, Loral, would have suffered severe financial
consequences had the decision been postponed. The result of the Administration's
action is that the company continues to export, notwithstanding the fact
that it may have already broken the law.

Again, was that decision made as a result of an objective balancing of national
security versus free trade, or did the campaign contributions by the CEO
of Loral influence the outcome? Why should Chinese and industry imposed deadlines
force oversight agencies to rush decisions that prudence dictates may require
more time?

Relaxation of exports of technology, including satellites, began during the
Reagan Administration and was continued by the Bush Administration. During
both of those administrations, primary control over the export approval process
laid with the State Department. Then-Senator Gore was a vocal critic of the
Bush Administration for granting waivers for the launch of U.S. missiles
aboard Chinese rockets. Nevertheless, President Clinton not only continued
to grant more of the same type of waivers, but expanded upon the approval
of exports of satellites and approval of launches, finally vesting the Department
of Commerce, an agency much more well known for acting on political
considerations, with total jurisdiction for licensing all commercial satellite
exports. The effect of this transfer has been to remove commercial satellites
from inclusion in sanctions requirements and to permit the export of commercial
satellites with less oversight from those vested with safeguarding our national
security.

I emphasize less oversight, as Administration documents clearly demonstrate
a proclivity to minimize the State, Defense, and Congressional roles in the
licensing process. Administration arguments that security concerns are protected
through

Executive Order 12981 are suspect. As one NSC memo pointed out, E.O.12981
merely provides for dissenting agencies to appeal to the White House. The
Department of Defense, however, was denied authority to veto an export. I
want to focus on how and why that transfer of jurisdiction occurred.

There is no stronger free trade advocate than I. I have also supported Favored
Nation status for China. However, allegations reported in the press over
the past few months regarding unlicensed and unapproved transfers of technical
information to China, as well as information regarding China's transfer of
missile technology to other countries, warrant further consideration and
investigation to assure that the proper balance between free trade and national
security has been struck. The purpose of this hearing today is not to duplicate
the efforts of other committees investigating the details of alleged
proliferation of weapons, nor the details of alleged illegal technology
transfers. We are here today to review the process by which the balance between
trade and national security has been struck and to consider whether the decisions
have been made for objective, supportable reasons, or whether improper
influences, including political contributions, have had an undue influence
in the process.

How do we move forward to assure the freest trade possible without jeopardizing
national security? How do we assure ourselves and the American public that
the best interests of the country and its defense are kept foremost in the
minds of the government officials making these decisions? We are here today
to hear the opinions and perspectives of both the Administration and others
who have considered the issues.

I am pleased to be here today to discuss the evolution of export controls
on commercial communications satellites. The allegation that a major U.S.
satellite manufacturer provided China with sensitive technologies that may
have applicability to its missile programs has highlighted how the United
States controls the export of such technology and how this policy has changed
in recent years.

My testimony today is based on our January 1997 report, prepared at the request
of the Chairman, House National Security Committee, on the military sensitivity
of commercial communications satellites and the implications of the 1996
change in export licensing jurisdiction.1 I will discuss (1) key
elements in the export control systems of the Departments of Commerce and
State, (2) how export controls for commercial satellites have evolved over
the years, (3) the concerns and issues debated over the transfer of commercial
communications satellites to the export licensing jurisdiction of the Department
of Commerce, and (4) the safeguards that may be applied to commercial satellite
exports. Lastly, I will share some observations on the current export control
system.

SUMMARY

The U.S. export control system--comprised of both the Commerce and State
systems--is about managing risk. Exports to some countries involve less risk
than to other countries and exports of some items involve less risk than
others. The planning of a satellite launch with technical discussions and
exchanges of information taking place over several years involves risk no
matter which agency is the licensing authority. Recently, events have focused
concern on the appropriateness of Commerce jurisdiction over communication
satellites. This is a difficult judgement. By design, Commerce's system gives
greater weight to economic and commercial concerns, implicitly accepting
greater security risks. And by design, State's system gives primacy to national
security and foreign policy concerns, lessening--but not eliminating--the
risk of damage to U.S. national security interests.

BACKGROUND

The U.S. export control system for items with military applications is divided
into two regimes. State licenses munitions items, which are designed, developed,
configured, adapted, or modified for military applications, and Commerce
licenses most dual-use items, which are items that have both commercial and
military applications. Although the

Commerce licensing system is the primary vehicle to control dual-use items,
some dual-use items--those of such military sensitivity that stronger control
is merited--are controlled under the State system.

Commercial communications satellites are intended to facilitate civil
communication functions through various media, such as voice, data, and video,
but they often carry military data as well. In contrast, military communications
satellites are used exclusively to transfer information related to national
security and have one or more of nine characteristics that allow the satellites
to be used for such purposes as providing real-time battlefield data and
relaying intelligence data for specific military needs. In addition, the
technologies used to integrate a satellite to its launch vehicle are similar
to those used to integrate ballistic missiles to their launch vehicles.

In March 1996, the executive branch announced a change in licensing jurisdiction
transferring two items--commercial jet engine hot section technologies and
commercial communications satellites--from State to Commerce. In October
and November 1996, Commerce and State published regulations implementing
this change, with Commerce defining enhanced export controls to apply when
licensing these two items.

KEY ELEMENTS OF U.S. EXPORT CONTROL SYSTEM

State and Commerce's export control systems are based on fundamentally different
premises. The Arms Export Control Act gives the State Department the authority
to use export controls to further national security and foreign policy interests,
without regard to economic or commercial interests. In contrast, the Commerce
Department, as the overseer of the system created by the Export Administration
Act, is charged with weighing U.S. economic and trade interests along with
national security and foreign policy interests. Differences in the underlying
purposes of the control system are manifested in the systems' structure.
Key differences reflect

-- who participates in licensing decisions,

-- scope of controls,

-- time frame for the decision,

-- coverage by sanctions, and

-- requirements for congressional notification.

Page 3

Participants. Commerce's process involves five agencies--the Departments
of Commerce, State, Defense, Energy, and the Arms Control and Disarmament
Agency. Other agencies can be asked to review specific license applications.
For most items, Commerce approves the license if there is no disagreement
from reviewing agencies. When there is a disagreement, the chair of an
interagency group known as the Operating Committee, a Commerce official,
makes the initial decision after receiving input from the reviewing agencies.
This decision can be appealed to the Advisory Committee on Export Policy,
a sub-cabinet level group comprised of officials from the same five agencies,
and from there to the cabinet-level Export Administration Review Board, and
then to the President.

In contrast, the State system commonly involves only Defense and State. While
no formal multi-level review process exists, Defense officials stated that
license applications for commercial communications satellites are frequently
referred to other agencies, such as the Arms Control and Disarmament Agency,
the National Security Agency, and the Defense Intelligence Agency. Day-to-day
licensing decisions are made by the Office of Defense Trade Controls, but
disagreements could be discussed through organizational levels up to the
Secretary of State.

This difference in who makes licensing decisions underscores the weight the
two systems assign to economic and commercial interests relative to national
security concerns. Commerce, as the advocate for commercial interests, is
the focal point for the process and makes the initial determination. Under
State's system, Commerce is not involved, underscoring the primacy of national
security and foreign policy concerns.

Scope of Controls. The two systems also differ in the scope of controls.
Commerce controls items to specific destinations for specific reasons. Some
items are subject to controls targeted to former communist countries while
others are controlled to prevent them from reaching countries for reasons
that include antiterrorism, regional stability, and nonproliferation. In
contrast, munitions items are controlled to all destinations, and State has
broad authority to deny a license; it can deny a request simply with the
explanation that it is against U.S. national security or foreign policy
interests.

Time frames. Commerce's system is more transparent to the license
applicant than State's system. Time frames are clearly established, the review
process is more predictable, and more information is shared with the exporter
on the reasons for denials or conditions on the license.

Sanctions. The applicability of sanctions may also differ under the
two export control systems. Commercial communication satellites are subject
to two important types of sanctions: (1) Missile Technology Control Regime
and (2) Tiananmen Square sanctions.

Page 4

Under Missile Technology sanctions, both State and Commerce are required
to deny the export of identified, missile-related goods and technologies.
Communication satellites are not so-identified but contain components that
are identified as missile-related. When the United States imposed Missile
Technology sanctions on China in 1993, exports of communication satellites
controlled by State were not approved while exports of satellites controlled
by Commerce were permitted.

Under Tiananmen Square sanctions, satellites licensed by State and Commerce
have identical treatment. These sanctions prohibit the export of satellites
for launch from launch vehicles owned by China. However, the President can
waive this prohibition if such a waiver is in the national interest.

Congressional Notification. Exports under State's system that exceed
certain dollar thresholds (including all satellites) require notification
to the Congress. Licenses for Commerce-controlled items are not subject to
congressional notification, with the exception of items controlled for
antiterrorism. However, Congress is notified of presidential waivers of the
Tiananmen Square sanctions under both the State and Commerce systems.

EVOLUTION OF EXPORT CONTROLS FOR COMMERCIAL SATELLITES

Export control of commercial communications satellites has been a matter
of contention over the years among U.S. satellite manufacturers and the agencies
involved in their export licensing jurisdiction--the Departments of Commerce,
Defense, State, and the intelligence community. To put their views in context,
I would now like to provide a brief chronology of key events in the transfer
of commercial communications satellites to the Commerce Control List.

Origin of Commercial Space Cooperation with China

As the demand for satellite launch capabilities grew, U. S. satellite
manufacturers looked abroad to supplement domestic facilities. In 1988, President
Reagan decided to allow China to launch U.S.-origin commercial satellites.
The United States and China signed an agreement in January 1989 under which
China agreed to charge prices for commercial launch services similar to those
charged by other competitors for launch services and to

_______________

For a chronology and background information on satellite launches
from China, see China: Possible Missile Technology Transfers from U.S.
Satellite Export Policy--Background and Chronology, by Shirley A. Kan,
Congressional Research Service, May 20, 1998 (98-485 F).

Page 5

launch nine U.S.-built satellites through 1994.

Following the June 1989 crackdown by the Chinese government on peaceful political
demonstrations on Tiananmen Square in Beijing, President Bush imposed export
sanctions on China. President Bush subsequently waived these sanctions for
the export of three U.S.-origin satellites for launch from China. In February
1990, Congress passed the Tiananmen Square sanctions law (P.L. 101-246) to
suspend certain programs and activities relating to the Peoples Republic
of China. This law also suspends the export of U.S. satellites for launch
from Chinese-owned vehicles.

First Transfer of Licensing Jurisdiction

In November 1990, the President ordered the removal of dual-use items from
State's munitions list unless significant U.S. national security interests
would be jeopardized. This action was designed to bring U.S. controls in
line with the industrial (dual-use) list maintained by the Coordinating Committee
for Multilateral Export Controls, a multilateral export control arrangement.
Commercial communications satellites were contained on the industrial list.
Pursuant to this order, State led an interagency review, including officials
from Defense, Commerce, and other agencies to determine which dual-use items
should be removed from State's munitions list and transferred to Commerce's
jurisdiction. The review was conducted between December 1990 and April 1992.
As part of this review, a working group identified and established performance
parameters for the militarily-sensitive characteristics of communications
satellites. During the review period, industry groups supported moving commercial
communications satellites, ground stations, and associated technical data
to the Commerce Control List.

In October 1992, State issued regulations transferring jurisdiction of some
commercial communications satellites to Commerce. These regulations also
defined what satellites remained under its control by listing nine militarily
sensitive characteristics that, if included in a commercial communication
satellite, warranted their control on State's munitions list. (These
characteristics are discussed in appendix 1.) The regulations noted that
parts, components, accessories, attachments, and associated equipment (including
ground support equipment) remained on the munitions list, but could be included
on a Commerce license application if the equipment was needed for a specific
launch of a commercial communications satellite controlled by Commerce. After
the transfer, Commerce noted that this limited transfer only partially fulfilled
the President's 1990 directive.

Interagency Groups Consider Whether to Transfer Additional Satellites

Export controls over commercial communication satellites were again taken
up in September 1993. The Trade Promotion Coordinating Committee, an interagency
body composed of representatives from most government agencies, issued a
report in which it

Page 6

committed the administration to review dual-use items on the munitions list,
such as commercial communication satellites, to expedite moving them to the
Commerce Control List.

Industry continued to support the move of commercial communications satellites,
ground stations, and associated technical data from State to Commerce control.
In April 1995, the Chairman of the President's Export Council met with the
Secretary of State to discuss issues related to the jurisdiction of commercial
communications satellites and the impact of sanctions that affected the export
and launch of satellites to China.

Also in April 1995, State formed the Comsat Technical Working Group to examine
export controls over commercial communications satellites and to recommend
whether the militarily sensitive characteristics of satellites could be more
narrowly defined consistent with national security and intelligence interests.
This interagency group included representatives from State, Defense, the
National Security Agency, Commerce, the National Aeronautics and Space Agency,
and the intelligence community. The interagency group reported its findings
in October 1995.

Consistent with the findings of the Comsat Technical Working Group and with
the input from industry through the Defense Trade Advisory Group, the Secretary
of State denied the transfer of commercial communications satellites to Commerce
in October 1995 and approved a plan to narrow, but not eliminate, State's
jurisdiction over these satellites.

President Transfers Jurisdiction to Commerce

Unhappy with State's decision to retain jurisdiction of commercial communications
satellites, Commerce appealed it to the National Security Council and the
President. In March 1996, the President, after additional interagency meetings
on this issue, announced the transfer of export control authority for all
commercial communications satellites from State to Commerce. A key part of
these discussions was the issuance of an executive order in December 1995
that modified Commerce's procedures for processing licenses. This executive
order required Commerce to refer all licenses to State, Defense, Energy,
and the Arms Control and Disarmament Agency. This change addressed a key
shortcoming that we had reported on in several prior reviews.

In response to the concerns of Defense and State officials about this transfer,
Commerce agreed to add additional controls to exports of satellites designed
to mirror the stronger controls already applied to items on State's munitions
list. Changes included the establishment of a new control, the significant
item control, for the export of sensitive satellites to all destinations.
The policy objective of this control--consistency with U.S. national security
and foreign policy interests--is broadly stated. The functioning of the Operating
Committee, the interagency group that makes the initial licensing determination,
was also modified. This change required that the licensing decision for these
satellites be made by majority vote of the five agencies, rather than by
the chair of the Committee. Satellites were also exempted from other provisions
governing the licensing of most items on the Commerce Control List.

In October and November 1996, Commerce and State published changes to their
respective regulations, formally transferring licensing jurisdiction for
commercial communications satellites with militarily sensitive characteristics
from State to Commerce. Additional procedural changes were implemented through
an executive order and a presidential decision directive issued in October
1996.

CONCERNS AND ISSUES DEBATED IN THE DECISION

According to Commerce officials, the President's March 1996 decision reflected
Commerce's long-held position that all commercial communications satellites
should be under its jurisdiction. Commerce argued that these satellites are
intended for commercial end use and are therefore not munitions. Commerce
maintained that transferring jurisdiction to the dual-use list would also
make U.S. controls consistent with treatment of these items under multilateral
export control regimes.

Manufacturers of satellites supported the transfer of commercial communications
satellites to the Commerce Control List. They expressed concern that, under
State's jurisdiction, the satellites were subject to Missile Technology sanctions
requiring denial of exports and to congressional notifications. Satellite
manufacturers also stated that such satellites are intended for commercial
end use and are therefore not munitions subject to State's licensing process.
They also believed that the Commerce process was more responsive to business
due to its clearly established time frames and predictability of the licensing
process. Satellite manufacturers also expressed the view that some of the
militarily sensitive characteristics of communications satellites are no
longer unique to military satellites.

Defense and State point out that the basis for including items on the munitions
list is the sensitivity of the item and whether it has been specifically
designed for military applications, not how the item will be used. These
officials have expressed concern about disclosure of technical data to integrate
the satellite with the launch vehicle because

Page 8

satellite integration technologies can also be applied to launch vehicles
that carry ballistic missiles to improve the missiles' performance and
reliability. The process of planning a satellite launch takes several years,
and there is concern that technical discussions between U.S. and foreign
representatives may lead to the transfer of information on militarily sensitive
components. They also expressed concern about the operational capability
that specific characteristics, in particular antijam capability, crosslinks,
and baseband processing, could give a potential adversary.

Defense and State officials said they were particularly concerned about the
technologies to integrate the satellite to the launch vehicle because this
technology can also be applied to launch ballistic missiles to improve their
performance and reliability. Accelerometers, kick motors, separation mechanisms,
and attitude control systems are examples of equipment used in both satellites
and ballistic missiles. According to State, such equipment and technology
merit control for national security reasons.

SAFEGUARDS APPLIED TO COMMERCE AND STATE SATELLITE EXPORTS

No export license application for a satellite launch has been denied under
either the State or Commerce systems. Therefore, the conditions attached
to the license are particularly significant.

Exports of U.S. satellites for launch in China are governed by a
government-to-government agreement addressing technology safeguards. This
agreement establishes the basic authorities for the U.S. government to institute
controls intended to ensure that sensitive technology is not inadvertently
transferred to China. This agreement is one of three government-to-government
agreements with China on satellites. The others address pricing and liability
issues.

During our 1997 review and in recent discussions, officials pointed to two
principal safeguard mechanisms to protect technologies. Safeguard mechanisms
include technology transfer control plans and the presence of Defense Department
monitors during the launch of the satellites.

-- Technology transfer control plans are prepared by the exporter and approved
by Defense. The plans outline the internal control procedures the company
will follow to prevent the disclosure of technology except as authorized
for the integration and launch of the satellite. These plans typically include
requirements for the presence of Defense monitors at technical meetings with
Chinese officials as well as procedures to ensure that Defense reviews and
clears the release of any technical data provided by the company.

Page 9

-- Defense monitors at the launch help ensure that the physical security
over the satellite is maintained and monitor any on-site technical meetings
between the company and Chinese officials. Authority for these monitors to
perform this work in China is granted under the terms of the government to
government safeguards agreement.

Additional government control may be exercised on technology transfers through
State's licensing of technical assistance and technical data. State technical
assistance agreements detail the types of information that can be provided
and give Defense an opportunity to scrutinize the type of information being
considered for export. Technical assistance agreements, however, are not
always required for satellite exports to China. While such licenses were
required for satellites licensed for export by State, Commerce-licensed
satellites do not have a separate technical assistance licensing requirement.

OBSERVATIONS ON THE CURRENT EXPORT CONTROL SYSTEM

The addition of new controls over satellites transferred to Commerce's
jurisdiction in 1996 addressed some of the key areas where the Commerce
procedures are less stringent than those at State. There remain, however,
differences in how the export of satellites are controlled under these new
procedures.

-- Congressional notification requirements no longer apply, although Congress
is currently notified because of the Tiananmen waiver process.

-- Sanctions do not always apply to items under Commerce's jurisdiction.
For example, under the 1993 Missile Technology sanctions, sanctions were
not imposed on satellites that included missile-related components.

-- Defense's power to influence the decision making process has diminished
since the transfer. When under State jurisdiction, State and Defense officials
stated that State would routinely defer to the recommendations of Defense
if national security concerns are raised. Under Commerce jurisdiction, Defense
must now either persuade a majority of other agencies to agree with its position
to stop an export or escalate their objection to the cabinet-level Export
Administration Review Board, an event that has not occurred in recent years.

___________________

A Commerce-licensed satellite would also require a State technical
assistance license if the technical discussions exceeded the basic information
required to attach the satellite to the rocket, commonly described as "form,
fit, and function" data.

Page 10

-- Technical information may not be as clearly controlled under the Commerce
system. Unlike State, Commerce does not require a company to obtain an export
license to market a satellite. Commerce regulations also do not have a separate
export commodity control category for technical data, leaving it unclear
how this information is licensed. Commerce has informed one large satellite
maker that some of this technical data does not require an individual license.

-- The additional controls applied to the militarily sensitive commercial
communications satellites transferred to Commerce's control in 1996 were
not applied to the satellites transferred in 1992. These satellites are therefore
reviewed under the normal interagency process and are subject to more limited
controls.

Mr. Chairman, this concludes my prepared statement. I would be happy to respond
to any questions you or other Members of the Committee may have.

DEAN
THE PAUL H. NITZE SCHOOL OF ADVANCED
INTERNATIONAL STUDIES
OF
THE JOHNS HOPKINS UNIVERSITY

FOR
THE U.S SENATE COMMITTEE ON COMMERCE,
SCIENCE AND TRANSPORTATION

HEARING ON

TRANSFER OF SATELLITE TECHNOLOGY TO CHINA

September 17, 1998

2

Mr. Chairman, I appreciate the opportunity to testify before this committee
on the important subject of U.S. technology transfer to China. Although this
is committee is known in shorthand as the commerce committee,
under your chairmanship I know that considerations of national security will
be given priority over purely commercial considerations, as I believe they
must be.

I also appreciate that you will concentrate on questions of policy. The tendency
in Washington to try to criminalize policy disagreements contributes to the
idea that if no crime was committed nothing is wrong. In fact, to paraphrase
Talleyrand, some things are worse than crimes, they are mistakes. In this
case the policy issues involved concern the security of future generations
of Americans, so mistakes are extremely serious. And the conclusion is virtually
inescapable that policy mistakes have been made in the area of technology
transfer to China, because there has been no policy, other than a policy
of blanket approvals.

Now, some may argue that not having a policy actually is the right policy,
because it contributes to a better relationship with China and that improvement
in that relationship is in the long-term interests of the United States.
I happen to share the view that our long-term relationship with China is
one of the most important issues, quite possibly the most important issue,
facing U.S. security in the next century. But I do not believe that a good
relationship with China can be based simply on the United States doing its
best to please China. It must be based fundamentally on Chinas behaving
responsibly as it becomes, over the course of the next several decades, one
of the most powerful countries in the world. To achieve that, U.S. policy
must recognize the fact that there are major elements of competition and
potential conflict in the relationship, particularly in the military sphere.
Improvements in Chinese military capabilities  particulatly Chinese
long-range missile capabilities  may be inevitable but they are nopt
are not in the long-term strategic interests of the United States.

Of course, China is a strong and capable country that can eventually acquire
the military capabilities that it wants to have without any help from us.
However, we need to weigh carefully the strategic consequences of actions
that have the effect of speeding up Chinas military development against
the possible strategic benefits. If there are no strategic benefits, or if
the costs clearly outweigh the benefits, I do not believe that any amount
of commercial gain justifies the transfer of technology to Chinas ballistic
missile programs, whether directly or indirectly.

Making such an assessment requires a policy framework and it seems quite
clear that at the moment no policy framework exists. Nothing is more telling
proof of that point than the Administrations claim that they are merely
continuing the policy of the Reagan and Bush Administrations. Now, some might
applaud this as commendable bipartisanship on the Administrations part,
and the fact that the Clinton-Gore campaign in 1992 excoriated President
Bush for supposedly coddling China shouldnt be held against
them. After all, people mature when they enter office and if this Administration
has now adopted the sensible policies of its predecessors, perhaps it deserves
to be congratulated.

3

As it happens, I served in both the Reagan and Bush Administrations. In fact,
as Assistant Secretary of State for East Asian and Pacific Affairs from
1982-1986, I played a role in the process by which the Reagan Administration
decided to liberalize controls over the transfer of dual-use technology to
China. I believe that President Reagans decision to liberalize those
controls in 1983 was a correct one. However, to continue that same policy
fifteen years later, in a world that has been fundamentally transformed
strategically, would be a serious mistake.

Permit me to go over a bit of history. When George Shultz became Secretary
of State in 1982, our relations with China were troubled. I accompanied him
on his first visit to China in February 1983. During that visit it became
clear that the most serious Chinese concern was over the very tight controls
imposed on the transfer of all dual-use technology. Deng Xiaoping personally
complained to Shultz that we were treating China just like the Soviet Union
and that, although many U.S. officials had promised China greater access
to Western technology, instead of rain China had received only
a few drops.

When we returned to Washington we undertook a fundamental review of U.S.
technology transfer policy toward China. We concluded that it made no sense
to have the same restrictions on China that were being applied to the Soviet
Union at the height of the Cold War. In fact, China was then a counter-weight
to Soviet military power, helping us to offset the Soviet threat to U.S.
allies in Europe and Asia. It was in the interest of the United States to
help China develop the military capabilities needed to deal with the formidable
threat that it faced from the Soviet Union. Moreover, China at the time was
cooperating with the United States on a number of important strategic issues,
particularly in Afghanistan, and some degree of reciprocation on our part
was warranted.

At the same time, we disagreed with those who said that we should simply
drop all controls on technology transfer to China, as the Chinese wanted.
Instead, we established green lines that substantially liberalized
technology controls, but retained control over the most sensitive technologies
that were above the green line. Of particular concern at the
time were technologies that contributed to Chinese missile and ASW capability,
capabilities that were most directly threatening to the United States.

It should be obvious from this account that a review of the policy of fifteen
years ago is long overdue. Most fundamentally, the Soviet Union no longer
exists and Chinese military strength no longer serves as a counterweight
that helps United States security. To the contrary, China is in the process
of becoming  albeit still quite slowly  probably the major strategic
competitor and potential threat to the United States and its allies in the
first half of the next century.

Moreover, China has changed in other ways, none of which would argue for
a liberalization of technology transfer. Instead of a strategic partner,
cooperating with us on Afghanistan and other issues, China has become a leading
proliferator of dangerous technology to enemies of the United States,
particularly Iran. Instead of being a stabilizing force in Asia, Chinese
behavior in the Spratly Islands and elsewhere has begun to raise questions
about Chinas long-run role. During the crisis in the Taiwan Straits
three years

4

ago, China used tests of its ballistic missiles to threaten Taiwan
and, on one occasion, reminded a senior U.S. defense official of Chinas
ability to threaten the United States with ballistic missiles.

None of this should lead to the conclusion that China should be treated as
an enemy of the United States. But for a country to receive assistance that
contributes to its development of ballistic missiles, not being an enemy
is not good enough. Our relationship with China has certainly not reached
the stage of strategic friendship that President Clinton claimed
for it during his recent trip.

All of this argues for a fundamental review of U.S. technology transfer policy
toward China, with a view toward tightening. What has happened instead is
the opposite. This Administration has substantially loosened controls on
dual-use technology of all kinds, and particularly with its decision to transfer
licensing authority over satellite exports from the State Department to the
Commerce Department. I support the proposals to restore State Department
jurisdiction in this area, but it must be emphasized that this action alone
is not a substitute for a fundamental policy review. In the absence of a
serious policy I doubt whether State jurisdiction will produce decisions
that are any different from those of the Commerce Department. Even a larger
role for the Defense Department will not ensure a more strategic view of
the issues, unless there is a policy and personnel to impose such a view.

Of course, one important strategic aspect of this issue does not concern
China specifically but concerns the health of the U.S. satellite industry.
That industry is one of our major strategic assets and access to the cheaper
launch services provided by China is no doubt good for the U.S. satellite
industry. That is a strategic benefit. However, this benefit must be weighed
against the transfer of technology that will unavoidably take place and the
financial subsidy that such sales provide to the Chinese missile industry.
Serious consideration should be given to a policy that would maintain the
competitive advantages of the U.S. satellite industry but that would subsidize
U.S. launch capabilities rather than those of our strategic competitors.
How much such a policy would cost  and how much it is worth 
are serious issues that cannot be resolved without serious study. However,
given the stakes involved, not only for this generation of Americans but
for our children and grandchildren, such a review is urgently needed.